Goldman E-Mail Message Lays Bare Trading Conflicts

by Andrew Ross Sorkin
The New York Times
January 12, 2010

For years, Wall Street whispered that Goldman Sachs profited handsomely by trading ahead of — or even against — its own clients.

On Tuesday, a Goldman executive made an unusual admission that, in some cases, the rumors were true.

In an e-mail message to select clients, Thomas C. Mazarakis, the head of Goldman’s fundamental strategies group, acknowledged that his unit often provided investment ideas that the firm had already traded on. Sometimes Goldman has even taken the opposite approach, betting against particular instruments that the group has recommended.

“We may trade, and may have existing positions, based on trading ideas before we have discussed those trading ideas with you,” he wrote.

The statement comes as the firm faces growing criticism over its role in the financial crisis, and is a rare acknowledgment of Goldman’s conflicts with certain of its clients.

“The way that the business is evolving is that it is laden with conflicts of interest,” Anant K. Sundaram, a professor of finance at Dartmouth’s Tuck School of Business, said.

Last month, the Securities and Exchange Commission and Congress began investigating how Goldman and other firms had created bundles of mortgages known as collateralized debt obligations, or C.D.O.’s, that were sold to investors at the same time that the banks had privately bet against the instruments. Some of these C.D.O.’s later fell in value, creating losses for those clients who bought them — and profits for Goldman.

The article continues at the New York Times.

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